After further investigation (via Google)I found a module called vfs_zfsacl which after compiling and enabling (it is not built on Solaris by default, it should be) fixes this problem. I wish the documentation were more clear that this is needed for anything ACL related on Vista and Windows 7. Actually I wish it were in the documentation. Maybe it is but I could not find it at the samba.org docs web site. You can close this item.
--mike